Regions№ 2 September 2017

The first large-scale wave of industrialisation of the Russian North began in the 1930s, when the Chibyiskoye oil field was discovered, followed by the establishment of the Chief Directorate of the Northern Sea Route. Before World War II, the ports of Igarka, Dikson, Pevek and Tiksi were built, and the industrial centres of Norilsk (non-ferrous metals production) and Vorkuta (coal mining) were established. The second surge of activity in the Arctic took place from the 1960-1980s. This means that we are now in the third wave of the development of the Russian Arctic. In the 2000s, several major infrastructure projects were resumed (such as the Varandey oil terminal, the Yamal-Europe gas pipeline and others), while the Development Strategy of the Arctic Zone of the Russian Federation was approved, along with a state programme to map out its implementation. In August, the government took the decision to extend the programme to 2025 from its original deadline of 2020. Dmitry Medvedev, Prime Minister of the Russian Federation, declared: “We will focus our efforts on three main areas: establishing economic growth points in the Arctic regions, the so-called base points; further opening up the Northern Sea Route and boosting the infrastructure that will enable shipping traffic through it; and developing the continental shelf using modern equipment and technologies.” The most important thing, in his opinion, is financing the programme. The federal budget allocated to implementing the strategy until 2025 will amount to over 190 billion roubles.

Big hopes

The Arctic region produces over 90% of Russian nickel and cobalt, 60% of copper, and 100% of the country’s barite and apatite concentrate. But new projects still mostly focus on oil and gas. According to the Russian Ministry of Natural Resources and Environment, this northern treasure chest has about 258 billion tonnes of conventional hydrocarbons, about 60% of the country’s total resources. The area has already been thoroughly developed: last year 40% of all gas in the country was produced in the Arctic regions. Work on the shelf is still beginning, however. Production is being carried out at the Yurkharovskoye oil and gas condensate field in the Kara Sea (a Novatek project) and the Prirazlomnoye oil field in the Pechora Sea (a Gazpromneft project).

Much is said about other promising projects – for example, there are expert forecasts that by 2050 the Arctic shelf could account for 20-30% of all Russian oil production. In June, Rosneft reported that during the drilling of the Central Olginskaya-1 Well in the Eastern Arctic, the core sample showed high oil saturation. ‘This could be a unique discovery. It is possibly the largest oil field on the shelf,’ Sergey Donskoy, Head of the Ministry of Natural Resources and Environment, shared on his Facebook page.

Northern ridge

Infrastructure is another important area of development. A good example of a transport project under development is Sabetta. In the first half of 2017, according to customs, the volume of cargo traffic through the port grew 1.5 times, and the turnover at the airport rose by 18 times. The bulk of cargo arriving in Sabetta is imported for the Yamal LNG, which is jointly operated by Novatek, the French company Total, the China National Petroleum Corporation and the Silk Road Fund. The construction of a liquefying plant with a capacity of 16.5 million tonnes should be completed in 2019 (although there is the possibility of early completion), which would supply Asian and European markets.

New projects still mostly focus on oil and gas.

Transport Minister Maxim Sokolov believes that in the next decade, Sabetta can become the largest cargo hub in the Northern Sea Route and a significant component of the region. Further development of the port’s infrastructure is largely due to the opening of a railway from the Bovanenkovskoye field (Gazprom). Another project that will contribute to the development of the port is the Northern latitudinal route (the construction of the 707 km line is planned to be completed in 2023). ‘It is important that the highway will be built entirely with Russian materials. The bridge over the Ob River alone will require in excess of 135,000 tonnes of metal structures. This effect will be felt in a wide variety of industries,’ comments Dmitry Kobylkin, Governor of the Yamal-Nenets autonomous region.

The Northern Sea Route has already seen a healthy cargo flow from the construction of the Yamal LNG terminal, and hopes for increasing its performance are also mainly associated with the Arctic. The main cargo will come from resources in the Arctic (liquefied natural gas, oil, coal) and metals necessary for the northern construction. Last year, the Northern Sea Route saw a record number of shipments in amounted to 7.3 million tonnes. Through projects implemented in the Arctic, this figure could rise to 40 million tonnes by 2024.

However, transit could result in even better prospects for the Northern Sea Route. After all, this route for Euro-Asian cargo transportation could be twice as fast as the traditional delivery channel through the Suez and Panama canals. To implement these plans, new icebreaker vessels are needed. Intensifying construction can become a catalyst for the growth of industries that supply technological solutions and materials that have managed to preserve or develop the necessary competencies. For example, today Metallinvest steel is used in shipbuilding for projects in the Arctic. Ural Steel supplied over 10,000 tonnes of ship steel for the construction of two multi-purpose diesel-electric icebreakers for the Novoportovskoye oil and gas terminal on the Yamal peninsula. Both vessels are able to move through up to 2m-thick ice and continuously operate at temperatures as low as -50°C.

Relying on one’s strengths

One of the main objectives of the development of the Arctic is import substitution. Restriction of access to global technology has been named as one of the key factors hindering the region’s development. Novatek chairman Leonid Mikhelson suggested in a recent interview introducing systematic and long-term measures to support domestic companies that could develop and manufacture equipment for Arctic projects. ‘Today, the government already grants tax breaks within the advanced development regions, but companies with the necessary skills are scattered throughout Russia,’ he noted.

Today, the government already grants tax breaks within the advanced development regions, but companies with the necessary skills are scattered throughout Russia.

Leonid Mikhelson

Novatek chairman

However, certain successful solutions to this problem have already been applied. Russian steel companies have already demonstrated their reliability in this macro-region by supplying materials for shipbuilding, as well as for oil and gas exploration. The Prirazlomnoye field is notable not only for the fact that it produced the first Russian oil from the Arctic (now known as Arctic Oil), but also for the fact that steel pipes for its development came from Russian suppliers.

Another vital component of Russian northern exploration (including in the polar region) is the construction of bridges and overpasses. Their metal structures must cope with heavy loads, be resistant to precipitation and temperature fluctuations, and resist corrosion. When, in autumn 2016, Metalloinvest reviewed its 10-year achievements, the company estimated that its products had been used in the construction of a total of over 70 bridges throughout the country, some of which were in Siberia and the Far North, in particular, a transport bridge across the Vakh River between the Tomsk region and the Khanty-Mansi autonomous region. The bridge linked the cities of Strezhevoy and Nizhnevartovsk, becoming an important link in the Northern Latitude Corridor. In addition, Ural Steel supplied metal for the Pobeda Bridge across the Nadym River, which linked the Yamal Peninsula to the centre of Russia and the Urals.

According to the scientist and policymaker Artur Chilingarov, the development of the Arctic territories can drive the development of the Russian economy. However, the Arctic is currently one of the few undeveloped territories in the world with significant reserves, and so is becoming a region of interest to many leading powers. ‘Nowadays the importance of the Arctic is increasing. It is attracting the focus of various countries and peoples both as a region, indicating the health of the global climate, as a unique treasure chest, and, of course, as a territory with colossal economic opportunities,’ said Vladimir Putin in March at ‘The Arctic: Territory of Dialogue’ forum.

Nowadays the importance of the Arctic is increasing. It is attracting the focus of various countries and peoples both as a region, indicating the health of the global climate, as a unique treasure chest, and, of course, as a territory with colossal economic opportunities.

Vladimir Putin

President of Russia, at ‘The Arctic: Territory of Dialogue’ forum

Of course, the development of the Arctic requires large financial investments, as well as a huge technological leap from Russian industry. But if the issue is not addressed, the Arctic may turn into a region of missed opportunities, on which the rest of the world can capitalise.

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